Special Issues

Recurring revenues—the kind of state income New Mexico can depend on year after year, like taxes—will be $10 million lower than expected this fiscal year and $52.7 million lower in 2011, a new government report finds. Rep. Luciano "Lucky" Varela is pictured.

Empty Pockets

The recession hits New Mexico’s budget

Rick Homans, New Mexico’s Secretary of the Taxation and Revenue Department, must have known it wasn’t going to be fun. Homans and Katherine Miller, the Finance and Administration secretary, were first to report to the Legislative Finance Committee on Dec. 3, the first day of its interim meeting. Their message was anything but bright.

Despite efforts to sweep money out of every cobwebby corner of government with a combination of freezes, furloughs, budget cuts and tax talk, New Mexico is still facing a $600 million budget shortfall. Recurring revenues will be lower than expected, Homans reported—a dangerous situation, especially when many of the budget fixes involve throwing one-time money, like federal stimulus grants set to evaporate next year, at ongoing costs. Critics worry that using such Band-Aids will only make things worse, and Homans’ report basically proves that point.

Nationwide, state budget deficits total some $78 billion. In New Mexico, constant reports of fiscal incompetence have given state government a reputation approaching that of just another Bear Stearns, with bad investments and reckless spending dismissed under the guise of “too big to fail”—because after all, you can’t just scrap an entire state government.

It all began with the announcement of a $650 million budget deficit in October—blamed on everything from corruption, ineptitude and mismanagement to tax cuts and big government. This reality lead to a $50,000-a-day special legislative session, designed to address the shortfall, which produced little in the way of actionable budget fixes; Gov. Bill Richardson vetoed much of what the session did pass.

Then, in November, state Auditor Hector Balderas found approximately $1 billion in unaccounted-for state funds from 61 state agencies that were delinquent on their audits. Many of the budget-balancing efforts Richardson has made are one-time fixes, things like using federal stimulus money to balance the budget, ordering furloughs and freezing capital outlay projects (many of which will resume anyway, unless the state wants a breach of contract lawsuit on its hands). Even Richardson’s latest approach, a 42-person Budget Balancing Task Force—more than half of whose members are registered lobbyists—has yet to show results.

“Different groups have different interests,” Richard Anklam, executive director of the New Mexico Tax Research Institute and a member of the task force, says. “I don’t think you would get a consensus from this group because it’s so diverse.”

The task force’s only mandate is to find “options,” not make recommendations—but for that very reason, critics abound, and many see the group as little more than a mouthpiece for special interests.

“I don’t have much confidence in the task force,” LFC Chairman Rep. Luciano “Lucky” Varela, D-Santa Fe, says. “All they’re doing is identifying possibilities. If they come up with suggestions, fine. But I’m not optimistic about the task force bringing any kind of positive results.”

Nevertheless, Varela and his fellow legislators have a constitutional obligation to address New Mexico’s fiscal situation in the 30-day session beginning Jan. 19, in which restricting double-dipping state employees and reinstating the state’s food tax are two of the more volatile issues expected for debate. In addition to the budget shortfall, Varela says, state reserves have shrunk to $60 million.

“We just can’t function with a 1 percent reserve balance,” Varela says. Fixing it, though, is “a catch-22: Do we cut services? Or do we increase revenue? To come up with a budget that’s going to help rather than hurt, it’s going to take a major effort,” Varela says. “It’s going to take not only reductions but also revenue enhancements.”

Varela is sensitive to the general distaste for “revenue enhancements,” a common euphemism for tax hikes. But many see it as inevitable—even Homans.

“For the purposes of this committee, we’re assuming…there will be tax bills passed. We are responding to that inevitability,” Homans told SFR in November.

The good thing about taxes is that, as much as they might hurt during a recession, they’re recurring revenue. In the meantime, any budget-balancing scheme that sounds too good to be true probably is.